News Releases

July 15, 2005

Hard Work On Regulation Will Strengthen Ukrainian Credit Union System

Following his visit to Belarus, World Council
of
Credit Unions, Inc. (WOCCU) board chair
L.R. "Bobby" McVeigh traveled to another former
Soviet republic, Ukraine, from June 29-July 1, to
discuss the topic of credit union regulation.
While there, he met with "all of the key
personnel involved in current project work with
the Ukraine credit union system." This included
government and credit union leaders such as
Mykola H.R. Zhulynsky, deputy of the Supreme
Council of Credit Unions; Andriy Olenchyk, head
of the commission responsible for credit union
licensing, regulating and supervising; the
director of finance for World Bank Projects in
Ukraine; and representatives of the Ukrainian
National Association of Savings and Credit Unions
and of the TACIS Project.

Representatives from the US and Canada, which
is
currently providing regulatory guidance and
support, were also present: members of the
Canadian Program on Ukrainian Credit Union
Strengthening—presently a 4-year, $4.3 million
project; the Canadian ambassador to Ukraine;
Canadian International Development Agency (CIDA)
officials; and B. Chomyak of the USAID Office of
Economic Growth. Together, the reports of this
cross-section of experts constructed a picture of
a system full of challenges, but with reason to
expect success.

There are 700 credit unions registered in
Ukraine, with a little less than 300 currently
affiliated with one of the three national
associations in existence. Of these roughly 300,
144 are connected to the Ukrainian National
Association of Savings and Credit Unions, which
has applied for membership in WOCCU. Though the
majority of all Ukrainian credit unions remain
unaffiliated, they are certainly active, with
credit unions having granted over 270,000
consumer loans in 2004. To unite the credit
union sector in this country of 48 million, a new
initiative has begun creating regional
federations. Currently, 16 of 24 regions possess
federations. If the remaining regions get on
board, it is conceivable that 27 regional and
national credit union associations could exist in
Ukraine in the future.

Regulation is a key issue right now. It is
recognized by the Ukrainian government that
credit unions, as deposit-taking institutions,
require close supervision and monitoring. Most
agree that the ultimate responsibility for
registration, licensing and ongoing assessments
of credit unions rests with the regulator,
through which all credit unions were required to
re-register in 2003. State financial service
regulation is still new in Ukraine, and credit
union legislation was only enacted in 2002. More
than ten non-bank financial institutions are
monitored by the same regulator, though 90% of
efforts are directed toward credit unions. And
these efforts have been sorely needed.

Although the first credit unions in the nation
were established in 1992, they were without a
legislative framework for ten years. Perhaps as
a result, 130-140 credit unions are in dire need
of rehabilitation, failing which they will be
merged or liquidated. Up to 150 credit unions
are in violation of management standards.
Approximately 350 credit unions—about half—
operate in a reasonable manner. Regarding the
latter group, the regulatory agency hopes to
provide guidance in terms of further development
of payment systems and expansion into mortgage
product delivery.

A crucial step towards raising the standards
of
Ukrainian credit unions is to fine-tune the
regulatory system. At present, the regulator
classifies credit union performance using a 7-
grade system, but the agency is investigating a
restructuring based on models developed either by
Canada, Poland, Lithuania or Hungary. Regulator
Andriy Olenchyk estimates that it would take 18-
36 months to structure such a system. In the
meantime, efforts will be made to continue
knowledge and best practices sharing between
Ukraine and the unofficial coalition of Canada,
Poland and WOCCU. As McVeigh noted, "The
continued growth of the Ukraine credit union
system will require cooperation from developed
credit union movements through continued project
work focused on clear objectives, measurable
outcomes and sustainability, meeting
international financial standards for accountable
operations."

Along these lines, the Polish credit union
system, in conjunction with the Polish
government, has approved a grant of $230,000US to
provide training for 160 Ukrainian credit union
officials in Poland, a decision about which
Andriy Olenchyk expressed his gratitude.
Regarding Olenchyk, McVeigh said, "it is evident
that [he] has made tremendous progress in a short
period of time and is well-positioned to ensure
the future success of the Ukraine credit union
movement." Ukraine's national credit union
allies and foreign friends are committed to
helping hasten that success and have agreed to
continue keeping each other updated on their
common development efforts.

World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.

World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 57,000 credit unions in 103 countries serve 208 million people. Learn more about World Council's impact around the world at www.woccu.org.